The Economic and Social Impacts to India and Its Citizens from Inward Foreign Direct Investment


: Two policy case studies: FDI in Multi-Brand Retail Trading and the National Manufacturing Policy



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6.3: Two policy case studies: FDI in Multi-Brand Retail Trading and the National Manufacturing Policy


The social welfare implications to citizens from investment are highly contingent upon the investment policies and, in particular, the protections and stipulations afforded to mitigate disadvantages and promote advantages (OECD, 2002; UNCTAD, 2006). The Foreign Direct Investment in Multi-Brand Retail Trading Sector policy is an example of the government’s strategy to pursue and entice market seeking and service sector investment. The National Manufacturing Policy on the other hand, is an example of the government’s shift in strategy to target manufacturing investment. This section will explore the social welfare implications to India and its citizens and analyse the protections afforded (or needed) in the policies to mitigate negative consequences. As the two policies stand in contrast to each other in the level of afforded protections, explanations as to why the policies are so different will be explored.

It is important to note that both investment policies are relatively new and the impact of both policies have yet to take root. There has not been any FDI in the multi-brand retail sector at present (UNCTAD, 2014). Also, at present, the manufacturing zones planned for National Manufacturing Policy are under construction and not yet in operation. At the time of writing, 16 manufacturing zones have been granted government approval (Express News Service, 2014). Thus, the impact to India, as explored here, is in the context of possible future implications.


6.3.1: FDI in Multi-Brand Retail Trading (Press Note 5, 2012 Series)


In September 2012, the FDI retail bill was approved and passed in Parliament allowing 100 per cent FDI in single brand retail and 51 per cent in multi brand retail (DIPP, 2012). Prior to this legislation, FDI was permitted in single brand retail up to 51 per cent and FDI in multi-brand retail (MBRT) was prohibited. The retail bill, specifically MBRT, has arguably been the most contentious piece of FDI legislation since economic liberalisation in the early 1990s (Roy and Kumar, 2012). The newly elected political party, the BJP, which came to power in May 2014 were opposed to the bill prior to the national elections and are considering revoking the bill (NDTV, 2014). FDI in MBRT has widespread implications for many segments of the population such as domestic retailers, farmers, and consumers (Roy and Kumar, 2012).

Much of Indian shopping takes place in either open markets, small independent ‘mom and pop’ stores, called kirana stores; open market selling fresh fruits and vegetables; or with street vendors called ‘hawkers’ (Kumar and Ranjan, 2011; Ghosh et al, 2008). This is not to suggest that urban India does not have contemporary shopping malls filled with single-brand retail stores carrying the latest Western products: it does. What India does not have, as yet, is massive retail supermarkets such as Walmart, Tesco, Carrefour, etc. selling thousands of different branded items under one roof. Several TNCs such as Walmart and Tesco have previously entered the retail market through joint ventures with Indian companies in the wholesale cash and carry sector but were not able to set up their mega superstores until the retail bill. At present, the unorganized sector accounts for the overwhelming majority of retailing, up to 95 per cent, and currently employs between 30 million and 40 million people (Kumar, 2011).

Opponents to the legislation were concerned the small stores and street vendors will be displaced as rich and powerful TNCs enter the sector. A study commissioned by the ILO concluded that many self-employed, unorganized retailers have been pushed into this sector as a desperate survival strategy (Ghosh et al., 2008). Street vending is a particular source of income for many women in India who do not have fixed locations to sell their produce or products and many of their customers are the working poor consumers as well (Mukhopadhyay, 1997; Papola and Sharma, 1999; Ghosh et al, 2008). These small scale traders, it is argued, will not be able to compete with TNCs (Bhoumik, 2001; Sengupta, 2006; Ghosh et al., 2008). There are also large concerns that the multinational retailers will have a negative impact on farmers, particularly the small farmer. Research has shown a negative impact from corporatization of agriculture on small farmers both in terms of market access and prices (Ghosh et al, 2008; Kumar and Ranjan, 2011).

On the other hand, advocates of the MBRT declare that private investment from TNCs will remove crippling bottlenecks in India’s supply chain from the farm to the market, get rid of inefficient intermediaries or middle men and source directly from farmers thereby providing them higher profit, reducing food wastage, providing the consumer with lower prices and more choice, and supply investment to spur economic growth. For others, the policy will cause massive job displacement and loss of livelihood for small retailers and farmers. For opponents, the policy is another example of the government’s reckless pursuit of FDI to bolster GDP figures at the expense of the people.

The Indian government implemented several investment stipulations, often called ‘runners’, into the FDI bill. It could be argued this was done to mitigate for potential costs while attempting to extract the most potential benefit for India. Similarly, it could also be argued that these conditions were necessary due to the political and civil protest which effectively brought the legislation to a political deadlock (UNCTAD, 2014). Indian business associations have complained that the runners are too demanding and will thwart investment opportunity.

There are four main stipulations or runners. The first condition is that policy falls under the jurisdiction of the state, meaning, retail sales outlets may establish only in those States or Union Territories which have agreed, or agree in future, to allow FDI in MBRT (DIPP, 2012). Two, the amount to be invested must be at least USD 100 million. A third condition mandates that at least 50% of total FDI brought in the first $100 million has to be invested in 'back-end infrastructure' within three years (DIPP, 2012). 'Back-end infrastructure' includes capital expenditure on all activities, excluding that on front-end units; for example, investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, ware-house, agriculture market produce infrastructure etc. (DIPP, 2012). A fourth condition is that at least 30 per cent of the value of procurement of manufactured or processed products must be sourced domestically from micro, small, or medium enterprises that have a net worth of $2 million at the time of initial sourcing (DIPP, 2013). MBRT retailers are given five years to meet this local sourcing requirement, meaning they can import products initially (DIPP, 2013). In sum, the government implemented stipulations to mitigate the potential costs to its citizens and promote maximum benefit by ensuring only large investments with retailers investing considerable sums of money into back-end infrastructure while sourcing 30 per cent of their products from small and medium Indian businesses; within the States that have approved the bill.

As stated above, the first condition of the MBRT bill is that it is subject to individual State approval. To date, ten States and Union Territories (out of 28) have approved the bill. States with large levels of FDI such as Karnataka, Tamil Nadu, and Gujarat as well as Punjab and Kerala have not approved the bill, demonstrating the level of concern within India. However, advocates claim many more States will opt in after a precedent is set within the States opting for FDI MBRT.

In regards to the other stipulations in the bill set forth by the government, there are mixed opinions. AMK is a senior Professor with one of India’s premier economic policy think tanks. She worked with the government on the retail policy and she expressed criticisms to the conditional provisions implemented in the bill. She suggests that the proper regulatory framework needs to be in place to mitigate for risk; not conditions. She explains:

I am pro opening up of multi brand retail in a phased manner subject to having a proper retail regulation and none of the stupid clauses which the government has implemented. Like the government says you will be able to do multi brand retailing if you bring in $100 million but invest 50% of it in the back end...Logically speaking every time I bring in $100, I may invest in the beginning or all $100 in the back end and the next set of $100 to the front end...that is how business works. So if every time I bring in $100, you are telling me that I have to invest 50% of that here and 50% or that there...that does not work. They are saying that you have to source 30% from SME...this is also very stupid clause because it depends on what type of retailer you are...if you are Walmart you will not find an Indian SME that can do this. The government has shown that they do not understand what multi brand retail is. And because I designed the policy with them, I can definitely tell you that they do not understand! If you cannot design a good policy, you have an acceptability problem. You don’t have to put in conditions; you have to put in proper regulations.

The stipulation that 30 per cent must be sourced from SMEs is one way, it is argued, to ensure that some of the merchandise and produce is purchased locally from smaller and medium enterprises. However, as AMK highlights, the TNCs may struggle to find a local source to provide the volume of goods needed for a retailer like Walmart. The government appears to have listened to this concern because prior to the recent relaxation of conditions, TNCs had to purchase 30 per cent directly from the time of the original investment. Now, with the recent changes, the retailer has three years to fulfil the condition, meaning it can import 100 per cent for the first three years until it establishes a relationship with a local supplier. The overall concern is that without the sourcing clause, TNCs will bring in all of the products from other countries and use India only for its large domestic markets with an expanding middle class. The sourcing clause is an attempt to ensure that Indian farmers and suppliers will receive some benefit from the presence of mega superstores. It is also argued that this will help connect producers to the global market. The World Bank Chief Economist and previous Chief Economic Advisor to India’s Ministry of Finance, Kaushik Basu, suggested similar opportunities were possible for small and medium businesses with the arrival of large corporates in MBRT:

But there is another benefit that people often forget: Once a big international corporation comes and operates in India, it is also a corridor for sending goods out of India to the rest of the world. A small producer in a cubby hole in Bombay, Delhi or Calcutta who would not even know where to start to send his or her goods to Malaysia, to Europe, to USA can begin to use these corridors to begin to send their goods out. We have seen this in Indonesia; we have seen this in China. The small exporters begin to send their goods out through these companies that have come into the country (NDTV, 2012).

It is proposed that the condition for investors to spend 50 per cent of FDI on back-end infrastructure is a way to help fix the bottlenecks in the retail supply chain. As will be explored in the proceeding chapter above (see section 7.3.2), the current state of infrastructure is problematic for both investment and development concerns in India. There are large infrastructure problems in the retail supply chain. Previously, there has been a lack of investment in the logistics of the retail chain which has led to great inefficiencies in the market. Though India is the second largest producer of fruits and vegetables there are limited storage facilities and cold storages to keep the produce fresh, thus, much food is wasted (Deshmukh, 2012; Roy and Kumar, 2012). The amount of wastage in food grains is a heavy loss to farmers and, it is argued, has caused food prices to rise throughout India. Investment in back-end infrastructure, it is proposed, will help improve India’s infrastructure, reduce food wastage, as well as lower the cost of transportation of food items. For advocates of the bill, this is a big selling point, as Ron Somers, President of USIBC emphasizes in an interview with NDTV:

I would just like to add that in regards to infrastructure…when you think of the states that may move forward to elect [for] organised retail, you are going to see so much investment going into the infrastructure from the farm to the market: The warehousing, the cold chains, storage, the roadways…that investment is going to be there forever and therefore is going to be a benefit to the farmer and the consumer alike (NDTV, 2013).

As mentioned, one of the main concerns with FDI in MBRT is the potential job displacement for many people in the retail sector. Ghosh et al (2012) report an estimate that one Walmart store can displace up to 1,400 small stores costing 5,000 jobs. For many, this is the crux of the issue and the driving concern behind the civil and political protest. All interviewees agreed there would be a certain amount of job displacement. Also, all interviewees agreed that there will be some employment generation by corporate retailers but several respondents thought more would be many more displaced than those employed by corporate MBRT.

The lack of welfare programs in India such as unemployment insurance further confounds the problem of potential job displacement in the retail sector. AS, a Senior Fellow for an applied economics research organisation explains:

For example, we do not have a social security system...we do not have a very good welfare expenditure system, right? We don’t have it in India. Now if we are talking about doing something like this in Great Britain or France where you have such a huge welfare expenditure system, it may be different...we don’t have a welfare system and then to think about certain processes, like FDI in retail, which might have an adverse impact on employment for so many is a matter of huge concern.

Supporters of FDI in MBRT in this sample sometimes disagreed that the impact of job loss will be severe. Some respondents proposed that the Indian market is large enough for all players, large and small, to co-exist. One line of reasoning within this debate is that the Indian retail landscape is a special case with cultural properties that distinguish it from other consumer markets in other parts of the world and that the impact corporate retail will be different in the ‘Indian case’. CD is a senior Research Fellow at an applied economics research institute. Her research specialisations are international and development economics and FDI and inequality. CD commented on India’s consumer preferences and suggested the Walmart model of retail will not always service India’s unique consumer preferences and needs, thus, the impact of these corporate retailers may not be as large as some anticipate:

The worry that some people have is if you let in FDI in multi-brand retail, like Walmart...people will lose their jobs. But I feel this concept is based on the western concept of Walmart. In India, I do not think that Walmart will swallow everything up. Walmart cannot sell in the small quantities that people buy in rural India which are the biggest consumers. They buy small things, they buy small amount, and they buy fresh things. I think people are arguing against Walmart [are] using the Western notion. Many people in India buy like small sachets of things...like shampoo...where Walmart will sell this big thing of Shampoo for $5. So Walmart will cater to 300 million people not 700 million people. How many people are going to buy in bulk? People still do not like to refrigerate food, for God’s sake.

She goes on to suggest that the market will allow for both small and large, however, the impact to small retailers will not be negligible:

And some things, you will buy from a big store and some you buy from a small store....look at the convenience of getting bread or milk or whatever...you are not always going to drive to these huge Walmarts. Or you just call they guy and he delivers to you. These are advantages that the local guy can offer. But the smaller shops will be affected...you cannot say that there will be no effect. Some will die off but the ones which remain, will remain very well.

For several respondents, the retail bill is about sacrificing the majority for the consumption needs of the rich. As explored, formal service sector FDI is argued to be beneficial for the middle and upper classes. DR is a member of a national trade union that is politically attached to the Communist Party of India (Marxist) (Org. 23). It is one of the largest trade unions in India. He alludes to the prioritising the needs of the rich at the expense of the poor:

See just now what I say about the middle class and these Walmart and others...these big, big shopping malls, they require the capital of the middle class. If FDI comes in retail it is going to play absolute havoc! Hundreds of thousands of farming people are committing suicide out of hunger and what not...so those people cannot go to the shopping mall and go for a shopping spree. Millions of people will lose their jobs. So if the multi-brand retail, if they come, it will not be a business, it will be a sucking machine. They will suck people’s employment; they will suck the people who are trading, people who are retailing. Some number of high rise shopping malls will be there and they will have their backwards infrastructure support for them and some middle class people will enjoy it. But not for the rest of the country...so there is no question of supporting. And most are opposing, most State governments are opposing.

In summary, FDI in MBRT is a controversial and politically charged topic. The policy has the potential to impact large segments of the population such as small retailers who make up over 95 per cent of the retail market, farmers, and consumers. The nature and the extent of the impact are widely debated in India. The next policy to be analysed also has the potential to impact large segments of India’s labour force. However, this policy has not received the same level of national attention and scrutiny nor does it have the same level of afforded social protections as will be explored next.

6.3.2: National Manufacturing Policy (Press Note 2, 2011 Series)


During the time of my field research (October 2011-March 2012), the government enacted the National Manufacturing Policy (NMP), a large policy initiative aimed to enhance the manufacturing sector’s share of national GDP by eliminating the bottlenecks argued to hinder the sector’s progress, thereby creating massive employment opportunities. As will be explored in the upcoming chapter (see section 7.3), there are several main factors perceived to be holding investment back in the manufacturing sector included faulty infrastructure, acquiring land, stringent labour regulations and skill deficiencies. The key components of the NMP address each of these factors and propose the creation of large, self-regulating, industrial townships equipped with state of the art infrastructure for manufacturing investors.

The government lists six main objectives for the manufacturing policy (DIPP, 2011, p.3). The first objective is to increase manufacturing sector GDP from 12-14 per cent to at least 25 per cent by 2022. The second objective is to create 100 million jobs by this time as well. The third listed aim is “to create appropriate skill sets among rural migrant and urban poor to make growth more inclusive.” The fourth and fifth objective is to increase technological depth and enhance global competitiveness. The sixth objective is to:

…ensure sustainability of growth, particularly with regard to the environment including energy efficiency, optimal utilization of natural resources and restoration of damaged/ degraded eco-systems (DIPP, 2011, p.3).

In order to achieve these objectives, the government outlines nine specific instruments or components that serve as the crux of the policy (DIPP, 2011, p.5). Four of the nine are specifically relevant to this thesis and will be explored further:



  1. Clustering and aggregation: National Investment and Manufacturing Zones (NIMZs);

  2. Rationalization and simplification of business regulations;

  3. Simple and expeditious exit mechanism for closure of sick units while protecting labour interests;

  4. Industrial training and skill up-gradation measures; (DIPP, 2011, p.5).

The remainder of this section will examine the main components of the policy and explore the wide ranging social implications at stake.

6.3.2.1: National Investment and Manufacturing Zones


A crucial aspect of the manufacturing policy is based on the concept of clustering or aggregating manufacturing enterprises within a zone known as National Manufacturing Investment Zones (NIMZs). The NMP (DIPP, 2011, p.25) describes the zones in the following passage:

The National Investment and Manufacturing Zones (NIMZs) will be developed as integrated industrial townships with state-of-the art infrastructure and land use on the basis of zoning; clean and energy efficient technology; necessary social infrastructure; skill development facilities, etc., to provide a productive environment to persons transitioning from the primary sector to the secondary and tertiary sectors.

One of the primary aspects of the NIMZ is that quality infrastructure will be in place and established by the state and central government. As discussed above lack of infrastructure was reported as the biggest hindrance for investment, particularly for manufacturing. DH is the Director of Economic Policy with one of India’s business associations. He also serves as a consultant with the United Nations Conference on Trade and Development. He suggested that the zones will provide a way to get the manufacturing sector going until India has developed its infrastructure across the country:

Actually in fact, that was our idea to the government that since we are not able to develop infrastructure at the country level, I mean sufficiently… and it will take some time but until that time, let us develop some clusters of excellence in manufacturing. If we are not able to provide a state of infrastructure across the country at least let us provide that in pockets. And let that gradually spread over the country.

Having zones which are created and established by the state government also spares investors the difficulty of acquiring private land which is a reported problem for investors. Whilst this may be preferential for the investor, it may cause increased problems of land displacement. Issues of land displacement will be explored further in Chapter Nine, however, it is important to understand here that land displacement is a very big problem in India and often the best agricultural lands are forcibly acquired by the government causing much protest from farmers and civil society (Mathur, 2011).

NIMZs have a minimum land requirement of at least 5000 hectares and several states are expressing difficulty in acquiring the vast tracts of land needed to establish the NIMZs. Five states have written to the Department of Industrial Policy Promotion requesting (DIPP) requesting the minimum land requirements to be lowered so that the states will not have to acquire so much agricultural land (Sharma and Seth, 2013). Agriculturally prominent states such as Gujarat are struggling to find the amount of land required that is not in use by farmers (Express News Service, 2013).

Acquiring large tracts of land is also concerning for poorer states, as the NMP dictates the responsibility falls to the individual State to purchase the land and provide resettlement and rehabilitation packages to land users. As discussed in Chapter Four (see section 4.3.3.4) there is a large discrepancy between the states that are attracting investment and advancing economically and those that are failing to do so. For states looking to catch up, advancing the manufacturing sector would be one way to achieve this. However, it is argued; because a large number of the NIMZ costs, such as land, fall under State responsibility and not the central government, this could place disadvantaged states in a further position of disadvantage thus further heightening interregional inequalities.

The policy states that the administrative structure of an NIMZ will comprise of a Special Purpose Vehicle (SPV) which will manage the affairs of the NIMZ. A key feature of the NIMZ is that it will be completely self-regulating. The concept of the manufacturing zones is similar to a previous investment policy, the Special Economic Zones Act of 2005 (SEZ Act). The main difference between the zones is that labour laws are curtailed in manufacturing zones whereas national labour laws apply to SEZs. The policy states that the NIMZ will be accorded municipal powers under the Indian Constitution:

To enable the NIMZ to function as a self-governing and autonomous body, it will be declared by the State Government as an Industrial Township under Art 243 Q(c) of the Constitution ( DIPP, 2011, p.25 ).

The government previously granted such status to SEZs, however, all of the national labour and environmental regulations were applicable to SEZs and this is not the case with NIMZs as will be explored next.


6.3.2.2: Rationalization and simplification of business regulations


Although business groups have continually called for greater flexibility in labour regulations, they have been unable to cause changes to the national labour laws (Murali, 2010). The first policy instrument provided in the NMP to promote manufacturing is the rationalization and simplification of business regulations. Complex regulations are argued to be stifling investment as BG, a senior economic researcher and policy analyst for one of India’s national business associations explains:

It is felt that the reason why manufacturing hasn’t grown much in India is because there are much restrictions on manufacturing...the labour laws, environmental regulations, all the red tape and bureaucracy in starting a factory...all the inspections. It is a very, very regulated sector. So this policy supports doing away with some of these regulations in specific zones.

The policy stipulates that the SPV will prepare a strategy for the development of the zone and produce an action plan for self-regulation to be submitted to the Board of Approval in the DIPP within three months from the date of the composition of the SPV. Environmental and labour protections are to be ensured through statutory inspections under the direction of the CEO of the SPV (senior Government official) and that these inspections will be periodic, although it does not specify how periodic. However, there are institutional challenges regarding public labour inspections in India, as one interviewee, BJ, explained. BJ is a specialist on international labour standards and discrimination for an international organisation that promotes fair labour standards. He suggests there are many flaws with government inspection services to the detriment of labour standards:

Private compliance with the public inspectors is not happening. It is not happening at all. And then the public labour inspector, of course, is under staffed, under qualified, no means of transport, under paid and corrupt. That is the issue: you just pay the inspector Raj…you pay him or her off and you get a tick in the box and there is no problem what so ever. So it is a very kind of devious system. And as a worker, it is very difficult to get your entitlements one way or another. So in that sense this whole exclusion of labour generally it is only increasing basically ...it is getting worse and worse.

Thus, it would appear that unless the government addresses the problems such as corruption and under resourcing within the institution of government inspections, ensuring that labour regulations within NIMZs are properly followed may prove problematic. Furthermore, this discussion of corrupt government inspections is an example of state-facilitated corporate crime as per Kramer et al’s definition (2002) and an example of an explicit act of omission according to Kauzlarich et al (2003) (see sections 3.3.5.4). These actions, as described by this elite policy stakeholder, would also fit the definition of state crime in that the state is “failing to exercise due diligence over the actions of its agents” (Rothe and Friedrichs, 2006, p.151; see section 3.3.5.4). The failure of the government to enforce labour laws are explored in further detail in the upcoming chapter (see section 7.3.3)

The NMP does not provide any detail regarding the freedom of association or if labour unions are allowed in NIMZs, thus, it could be assumed that it will be left to the discretion of NIMZ and stipulated in the initial action plan for self-regulation. However, as BJ explains, employers in India are not supportive of labour unions:

So and this is the general trend…. here you have strategies to keep unions out of the companies no matter what. And they go a long way, for instance in Gurgaon there are companies that have hired goondas which is like bandits or criminals and then they just put a criminal at the front gate of the factory so that every worker knows that the moment that I try to organize or I raise my voice or I try to be a bit difficult or I just try to fight for my rights then that guy might be sent after me and give me a black eye or break my arm...so it is like mafia kind of practices. And basically this is happening all over the sub region of South Asia. So anything that has to do with voice representation as we call it...unions...is extraordinarily difficult.

Again, this violence and intimidation is a form of corporate crime (Clinard and Yeager, 2006, 1980; Paternoster and Simpson, 1993; Dorling et al, 2005; Kramer and Michalowski,2005) (see section 3.3.3). It is also an example of state crime using Rothe and Friedrichs’ (2006) definition (see section 3.3.5.4) and one which has serious physical costs to employees.

It is important to note that the above describes the repressive working conditions that are occurring in places where all of the national labour protections are afforded and union representation should be obligated by law. Thus, there is concern that deregulation and liberalisation of labour laws will result in an increase in labour repressions and harmful working conditions. If deleterious and violent working conditions do increase as a result of the liberalisation of labour laws, it could be argued that the state is now taking part in a state-initiated state-corporate crime using Kramer et al’s (2002) theory (section 3.3.5.4). Although the TNCs are not specifically employed by the state, it could be argued that by locating in an NIMZ which are established by the state and following the policy devised by the state, the deviance resulting from liberalisation of labour laws is at the direction of the state and its policy. It could also be argued that the creation of a government policy that results in an increase in harm and labour repression would classify as an implicit act of commission according to Kauzlarich et al’s (2003) continuum of complicity. We can assume the government did not intentionally set out to cause violence to workers but in its shared goals of increased investment, it is implicitly initiating situations where real harms to workers can transpire. As discussed in Chapter Three (see section 3.3.5.4), Bruce and Becker (2007) concluded that the state can evolve from initiator to facilitator. Here, it would appear that the state has evolved from facilitator in turning a blind-eye to the enforcement of labour laws to an initiator whereby the government conceived a policy that may result in the increase of labour repression and harm.

6.3.2.3: Simple and expeditious exit mechanism


The third key policy instrument provided in the NMP is the enactment of an exit policy (DIPP, 2011, p.10). As stated earlier, business has often advocated for greater flexibility in the ability to ‘hire and fire’ or shed labour when needed (Murali, 2010; Bhattacharya, 2007; Bhattacharjea, 2006). Section 3.1—Job Loss Policy—states that firms operating in NIMZs will provide job loss insurance equivalent to twenty days average pay as opposed to the mandatory requirement of fifteen days mandated by the Industrial Disputes Act. Labour Unions have pointed out that this insurance is contingent upon the worker ‘being allowed’ to work more than one year (Dhawan and Singh, 2011).

RW, Senior Employment Specialist with an international organisation that promotes decent labour standards, suggested that while he agrees that it is difficult for an employer to not to have the ability to reduce its labour force, there needs to be securities in place to protect employees:

In this day and age, how can you tell an employer that you cannot fire workers...no one agrees with that. But I would say that we have to make sure that workers are getting the severance pay that they are due; they are not. And also they get very little severance pay in this country. ..only fifteen days year per work and in other countries it is thirty or even more. International average is around thirty days so let’s bring it up to the international average, let’s make sure this coverage increases and find ways that will cover more of the workforce ...and then, obviously, social security plays a role...the government plays a role in providing protection for workers and you need a broader based social security system and India is trying to do but in a very fragmented way.

He goes further to suggest that labour market protections should be shared by the employer, the government and the employee:

Ultimately there are 3 actors involved in terms of providing protection to jobs and income and they have to share the burden...not just the employer but the worker and the government and everyone has to contribute to that burden. An employer has to contribute…I don’t believe for one second that the employer should be let off scot free because they will fire too much and it is not in the interest of the country...from both an economic and social point of view. But at the same time the government has to shoulder some of that responsibility. And there should be rules against unfair dismissal. Like in Bangladesh, you don’t need any justification for dismissal...and I think that has gone too far.

As the manufacturing policy is taking away labour market protections without increasing severance time or implementing social security programs, as RW highlights, employment in these zones may be insecure.

The exit policy also contains guidelines for re-deploying labour from closing firms to others within the NIMZ which may have a shortage. The policy does not state that this is contingent upon agreement with the employee, meaning that if an employee is redeployed to another unit and does not wish to work there, the policy does not indicate whether the job loss pay would be forfeited.

6.3.2.4: Industrial training and skill upgradation measures


During the Eleventh Five Year Plan, India emphasized skill development as a national priority. It implemented a large scale national skill development initiative in the form of a public private partnership (PPP) for vocational training called the National Skill Development Corporation (NSDC) (NSDC, 2014). The skill development proposal in the NMP encourages manufacturing firms to work with the NSDC to establish skill training units in each NIMZ (DIPP, 2011, p.16):

Since only 6% of the Indian workforce receives any form of vocational training currently, there is a pronounced ‘skill gap’ both in terms of quality and quantity.

The NMP outlines a four tier training structure for NIMZs: basic skills training for minimally educated workforce members, moderate training through Industrial Training Institutes (ITIs), specialized skill training through Polytechnics, and instructors’ training facilities for each NIMZ. The fact that skills training, on paper, address training needs for individuals entering organized work for the first time appears positive and inclusive. The policy does not underestimate the level of skill needed to perform basic manufacturing duties and outlines a ‘starting from scratch’ type of approach which may be helpful to individuals entering either non-agricultural or organized work for the first time. The need for skills upgradation will be explored further in the upcoming chapter (see section 7.3.4).

In sum, the NMP aims to increase India’s manufacturing GDP and create more employment. As noted the NIMZs are not in operation as of this time. Thus, the story on the ground as to the impact the NMP will have on employment creation, working conditions and human rights remains to be seen. However, it is questionable as to what kinds of working environments will be created when labour protections are removed as the National Manufacturing Policy prescribes.




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